The British pound will take centre stage in currency markets with all eye’s on UK GDP data. A lot of expectations have built up over the past few weeks, expecting first estimates to show UK economic growth accelerated to its fastest pace in more than three years in the third quarter. Such an outcome could prove extremely bullish for the British by raising speculation that the Bank of England will respond with higher borrowing rates much sooner than its 2016 guidance. The euro remain in dominant mood ahead of German business data as expectations of looser-for-longer US monetary policy fuels demand for more risky currencies. The Federal Reserve will meet next week and consensus is that Chairman Ben Bernanke will probably push back the chances of a stimulus taper until next year. The US dollar is trading at two year lows against the euro.
Sterling
The British pound could test new highs against the US dollar and recover against the euro over the coming sessions if key UK GDP data boosts optimism about Britain’s economic recovery and the chances of the Bank of England raising interest rates ahead of its 2016 forecast. Analysts expect UK economic growth to have accelerated to its fastest pace in more than three years in the third quarter. A stronger number would counter the Bank of England Governor’s claims however, and traders are likely to pile into the British pound should 1st GDP estimate beat expectations.
US dollar
The US dollar continued a downward grind as better news from China helped whet risk taking, while another elevated reading of US jobless claims kept the Federal Reserve on keep monetary stimulus in place for longer ahead of its policy meeting next week. The US dollar slipped to new two year lows against the Euro and is headed for its second weekly loss. But lingering uncertainty over the policy outlook in China helped the US dollar eke out gains against rivals from Australia and Canada, units with outsized links the world’s No. 2 economy.
Euro
The euro’s outperformance is unlikely to reverse as European leaders promise to tackle banking issues at a summit while investors expect German data to bolster hopes about a wider eurozone economic recovery. The euro is hovering nearest its highest level in two years against the US dollar. Good news on the IFO index would help overshadow disappointing PMI survey on Europe’s manufacturing and services sectors which showed a slightly slower than expected pace of growth. With eurozone officials so far deciding not to sound out concerns about the euro’s export-harming strength, there could be further upside for the single currency as the US monetary policy outlook fuels demand for higher returns.